Friday, July 31, 2009

Is the glass half-empty or half-full?

Presented to the Club by Michael A. Shirley in April, 2001. (Readers should note that this paper was written and presented prior to the events of 9/11 and the invasions of Afghanistan and Iraq.)

After our last “fun” musical evening I thought long about continuing in the same vein. I entertained the idea of presenting this paper in mime. But I thought you might have a problem with my “broken English.” Perhaps I should present it in song. I would not sully the rarified air of High Street, Pittsfield.

Seriously however, one of the pluses of our Monday Club meetings is the sheer “fun-ness” of them. I got to thinking about a remark Jack [Spencer] made to me about my having a different perspective from the other members. I certainly get much enjoyment from hearing your points of view on all sorts of matters. Further I detect marked differences in approach between Americans and the British and Europeans. This is a generalisation but it is always clear to me personally that my English friends tend to see serious difficulties, unpleasant consequences and pessimistic outcomes in many of the world’s affairs. Americans generally see the bright side of things and search for solutions. So there is the basis for my title, “Is the glass half empty or half full?” Of course there must be many reasons for this ranging from the age of the societies to their respective philosophies, pioneering or not, and to their differing economic circumstances among others.

I don’t intend to pursue these reasons but I do intend to have a little fun giving you my optimistic (thanks to America!) views and hopefully provoke some new thoughts. Bear with me.

As we took stock of the 20th century just over a year ago we realized that the past decade had been a very surprisingly positive one. Liberty — political, economic and personal — has become a widespread fact for the first time. FDR’s four freedoms — from fear and from want, of belief and of expression — are possessed by more people. more securely, than ever before. There is no challenge to the one world superpower, the United States, leading since 1945.

In business and trade this relatively peaceful world finds itself in the middle of two technological revolutions that promise on the whole beneficial changes to life, work and the intimate side of our affairs driven by computers and various forms of genetic engineering.

Too optimistic a view? A privileged, pampered, immigrant intentionally ignorant of the poverty and privations of millions of people on this earth?

Not really. I believe there is a good chance that a significant dent will be made in these depressing aspects of the modern world as I hope to explain.

Two impressive things stand out from the first 90 years of the last century, terror is no longer rife in large parts of the world, large-scale war is not ongoing or imminent, democracy is increasing and above all more and more people are interacting with each other across borders both economically and culturally. The second thing is how few people in the prosperous part of the world are as optimistic. Perhaps they are unable to step aside and recognize the good things amongst the daily worries and competition of their lives. Or they know that it has been a hard fight, no gift from heaven and liable to be reversed by purveyors of dogma, ideology and certainty.

The major issue today that threatens to overwhelm us is our population. The world’s people numbered 1 billion in 1900, today 6 billion. One-third of all people who have lived on this earth are alive today. The increase has been staggering in no small part to our very successful public health measures and to a lesser degree medical, lowering infant and maternal mortality to very low levels and raising life expectancy to an unimagined extent. Predictions in the1980s put the likely total in 2010 to be 12 billion. However since then fertility rates in many populations not only of prosperous nations have been dropping so much so that a total population of 10 billion in 2010 predicted in 1994 had been decreased to 9 in 1998. There is likelihood that fertility rates will drop further. That’s still a hell of a lot of people! (Note: This was written in 2001. As of mid-2009, the estimated world population for mid-2010 was 6.8 billion. — Editor)

There is no question that it is difficult to avoid a “half empty” (no pun intended) view of these statistics. And yet let us consider the enormous numbers of people who are living substantially better today than 50 years ago. I refer not only to Europeans and Japanese but to all those millions in East Asia, for example in Thailand, Taiwan, Korea and Malaysia. And let us not forget China and India. China with 1.3 billions has enjoyed 7-10 percent growth for over 10 years. Their economy will be the same size as that of the U. S. by 2015-20. Admittedly each individual’s share will be much less than an American’s but the catching up will be well underway. Who would have imagined 40 years ago when Mao Tse Tung was dispersing millions into the countryside onto inefficient communes that today China would have a robust and growing capitalist economy (a $60 billion trade surplus with the U. S.) and some companies like Kodak and Coca Cola are the largest players in their respective markets? It is true that the government is run by the Communist party but its involvement in the economy is diminishing quite rapidly. It genuinely sees this as a priority with its imminent admission into the WTO and its agreements on human rights. And most importantly a middle class is emerging which will demand political, economic and human rights. The environment will be one of its main concerns too. I will return to this later.

Now India, a country I love and find fascinating: I grew up in a post-war Great Britain dying to throw off its class structure and pursue a socialist utopia. It took 30 years for the country to realise you cannot keep cutting the cake into smaller and smaller equal parts if it cannot grow. Well, you can, but the nation becomes impoverished. India embraced socialism with a passion. For good reasons in the social field but disastrous in the economic one. Only in the last 10 years has India lowered its protective trade barriers, welcomed foreign investment and begun to take its proper place in the world. Frankly, when I mix with my affluent Indian friends I realise that if I lived there I would not want things to change. Cheap labour, family firms serving large protected markets, friends who invest your money with a 25 percent return and oodles of obsequious, respectful servants who truly know their place. India is beginning to stir. Witness its IT and programming wizards who live in Bangalore and send their work nightly to Silicon Valley companies and the enormous success of the its community here. The population is now over 1 billion. 225 million Indians enjoy an annual income of twice the American average of $40,000, an enormous absolute amount of money. The other 775 million are the problem but change is under away.

I mentioned earlier the increasing interaction of people across borders both economically and culturally. Globalisation informs almost anyone in the world where he or she can earn more than in their village, town or city. Significant numbers are no longer deterred by distance, border police, discrimination or any other barrier you can think of. We are used to illegal immigrants here but increasingly “fortress” Europe is being invaded by East Europeans, North Africans, people from the Middle East and even further afield. Note the recent suffocation of over 50 Chinese in a truck which crossed the English Channel. Such poor immigrants will work for less than the minimum wage, do work that the locals won’t and send valuable money home. I believe that as fertility rates drop in the developed world and there are not enough young workers to fund the elderly’s pensions immigrants will be more welcomed. I further believe that if we allowed much freer movement of workers we would see them acquire and develop their skills, return to their countries with money to invest and set up businesses there. So, many immigrants wish to return but are deterred by a fear of not being able to move back to the developed country when they want.

Globalisation culturally is having an important effect in reducing prejudice. With rather more sensitive antennae than most I can detect quantum changes in racial attitudes most hearteningly amongst the young. White Aryan resistance is testimony to that. There are, I believe, 25,000 Chinese (from China) students in this country. During my trip to India last year invariably on meeting an educated Indian speaking English of course I would discover he or she had a relative in the States most often working in ‘high tech.”

Let me return to our exploding population. It is certainly challenging our resources. And yet all of us elderly gentlemen have lived long enough to see dire predictions proved wrong. Ages ago a Rome club predicted we would run out of energy sources, acid rain would destroy all of our forests, etc., etc. The side of the equation we tend to ignore is technology. Challenge has allowed more sophisticated geological methods to find oil, more efficient ways to extract it and now no longer extravagant promising new ways to obtain non-fossil energy.

Water is extremely scarce in many areas. ”Half empty” practitioners see wars being fought over it. Certainly it is potentially a serious problem but conservation measures like “drip” irrigation techniques in Israel and toilets using a 1 1/2 gallon water flush instead of a 5 gallon one (this has transformed New York City’s water situation) have hardly been used in most thirsty areas of the world. There is a realization that local communities have to be involved in the solutions to the problems.

So seeing that whether we like it or not the billions of poor people are with us and aspiring to the same standard of living that the rich enjoy already where do we go from here? I believe the great majority of poor people are going to reach that goal. We are beginning to identify those conditions that seem to be necessary for the economic advancement of poor nations. So often in analysis of why they have not lowered the gap with the rich countries economists come up with answers such as they don’t have skills, history stands in the way, they have too little capital, their culture is not entrepreneurial. In fact these are just detailed ways of saying that poor countries are poor. More helpful studies such as “Economic Freedom of the World” first published in 1996 by 11 economic think tanks around the world are suggesting that most of the explanations lie in the way poor countries are governed rather than in their natural disadvantages or in the unfair treatment by the rich although I think the last factor is a significant one.

Economic freedom means the ability to do what you want with whatever property you have legally acquired, as long as your actions do not violate other people’s rights to do the same. Goods and services arrive because of property rights and the incentives to create and use them. The conclusion is abundantly clear: the freer the economy, the higher the growth and the richer the people. Countries that have maintained a fairly free economy for many years did especially well.

This is not to say that a laissez-faire approach is advocated. Rather, the study indicates that economic freedom is a broad concept which requires a great deal from government. It must set a clear and predictable regulatory economic climate. That means protecting property rights, enforcing the law, avoiding inflation and, very importantly, not grabbing all the money for itself or nationalising enterprises. Other important attributes are an independent judiciary, the absence of protective tariffs and the presence of an investment climate which encourages the education of children and training of workers besides building factories and clearing land for farms.

As I contemplate what I have written and delivered I realise that I am sounding rather earnest. But then I should. We have to use our accumulated knowledge to help reduce the misery in the developing world. The billions of poor people have to be given the opportunity to enjoy the things that we do. Ah, you’ll say “that will destroy the world’s environment.” But when you consider that since 1900 the world’s population has more than trebled the world ought to be a pretty disgusting, smelly polluted place. And yet the air over Manchester, London and Pittsburgh is cleaner now than 100 years ago. The same goes for water. Why? The reasons have to do with prices, technological innovation, social change and, in democracies, government regulation in response to popular pressure. That is why today’s environmental problems in the poor countries ought, in principle, to be solvable. The worst pollution does occur in poor countries. But it reflects a lack of democracy more than an excess of economic growth. That said it has been heartening to see recent exposures of corruption in the Philippines, Indonesia and India. The emerging middle classes will demand higher standards of behaviour.

Before finishing I would like to put in a plea that this country and the other rich ones exercise enlightened self interest with the accent on enlightened. For instance the two areas in which poor countries should be allowed to trade freely with the rich ones are agriculture and textiles. In the last round of trade negotiations they were given implicit promises that that would occur in return for recognition of intellectual property rights. The rich countries have never delivered. Certainly there are powerful lobbies to resist this but we have to find the political will. Just as the U. S. practiced enlightened self-interest by the implementation of the Marshall Plan after World War II to the eventual enrichment of all parties the same principles must be applied in trade between rich and poor nations.

Finally I, like you, naturally wonder whether all this anticipated prosperity will deliver happiness. Now, there’s a hot potato! It seems to me that one of the inherent necessities of capitalism is to induce envy. Keeping up with the Joneses stimulates growth! However, successful capitalism does give us choices, even the choice to choose unhappiness.

And with that please pass me my half full glass of wine. I thank you for your attention.

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